Apple Reports Earnings on Thursday: 8 Important Things to Watch

Three months ago, Apple (AAPL) surged to new highs after posting strong results and guidance with the help of positive iPhone pricing trends.

Will the company deliver a similar performance when it delivers its September quarter report on Thursday? While macro worries have grown considerably since Apple's last report, a few trends still seem to be in the company's favor heading into its busiest time of the year.

TheStreet will be live blogging Apple's earnings after the close on Nov. 1. Please check our home page then for more details.

Apple's earnings report is expected at 4:30 p.m. Eastern Time on Thursday, followed by an earnings call with analysts at at 5 p.m. Shares of Apple were up slightly to $219.36 on Thursday morning.

Make Money on Closed-End Mutual Funds. TheStreet's Robert Powell recently hosted an all-star panel of experts who explained everything you need to know on closed-end mutual funds, and often-overlooked investment class. Click here to register and watch for free.

Here are some things for investors to keep an eye on as Apple reports.

1. iPhone Volumes

Apple's iPhone unit sales only rose 1% annually in the June quarter, and the consensus is for units to be up just 2% in the September quarter to 47 million. The conservative forecasts come even though early demand for the iPhone XS and particularly the XS Max appears to have been healthy -- about ten days of XS sales were recorded during the quarter -- and Apple ended the June quarter with iPhone channel inventories near the low end of its target range.

Apple doesn't give quarterly iPhone unit guidance. However, its December quarter sales guidance should provide some idea of how it sees the quarter's iPhone sales trending. Currently, the consensus is for iPhone units to be roughly flat this quarter at 78 million.

2. iPhone ASP Trends

While iPhone volumes didn't rise much during the June quarter, strong iPhone X demand helped Apple's iPhone average selling price (ASP) by $118 to $724, helping total iPhone revenue grow 20%. For the September quarter, the consensus is for iPhone ASP to rise by $133 to $751.

It wouldn't be surprising if Apple got a question or two on the earnings call about December quarter ASP trends; the consensus for the quarter, a seasonally strong one for ASPs due to a greater mix of flagship iPhone sales, is at $809. A lot will depend here on how sales of the iPhone XS ($999 starting price) and XS Max ($1,099) compare relative to those of the recently-launched iPhone XR ($749).

3. Services Growth

Apple's Services segment revenue rose by an impressive 31% annually in the June quarter. The App Store, Apple Music, iCloud Storage and Apple Pay all played roles, as did rising search ad revenue-sharing payments from Alphabet/Google (GOOGL) .

For the September quarter, the consensus is for Services revenue to rise 20% to $10.2 billion. While the dollar's recent strengthening and the lapping of the one-year anniversary of what appears to be a more favorable deal with Google could affect Services growth a bit, that consensus still looks beatable.

4. 'Other Products' Growth

The "Other Products" segment, which covers the Apple Watch, Apple TV set-tops, headphones, iPods, HomePods and accessories, has been a standout for Apple in 2018. With the help of strong Apple Watch and AirPods demand, the segment saw revenue rise 37% in the June quarter to $3.74 billion.

The September quarter consensus is for Other Products revenue to rise 29% to $4.18 billion. Towards the end of the quarter, Apple launched 4th-gen Apple Watches that pack larger displays and impressive new health features.

5. Gross Margin Trends

Apple guided for a September quarter gross margin (GM) of 38% to 38.5%, which is slightly above a year-ago GM of 37.9%. And for the December quarter, the consensus is for Apple's GM to rise a modest 0.2 percentage points annually to 38.6%.

One or both of those numbers might end up proving beatable. Nosediving flash memory prices should provide Apple with a margin boost going forward, and to a lesser extent so should a recent softening in DRAM prices following over 18 months of increases. Higher iPhone ASPs are also a positive for margins, as is the fact that -- unlike the iPhone X, which featured major changes on both the inside and the outside -- the iPhone XS doesn't feature radical hardware changes relative to Apple's last flagship iPhone.

6. China Sales and Commentary

Apple's "Greater China" revenue, which had been under pressure during the last couple of years, has been bouncing in 2018. It rose 19% in the June quarter to $9.55 billion with the help of stronger hardware sales and good services momentum.

With trade tensions rising and the Chinese yuan recently weakening against the dollar, Apple's China sales and commentary are bound to get close attention. For now, the fact that Beijing has refrained from calling for boycotts against Apple or other major U.S. brands on account of trade tensions helps Apple's cause.

"China is a concern; that said, larger screen models tend to do better there and with the XS Max being the first large screen X model, it will be interesting to see how it performed there," said Zev Fima, research analyst for Jim Cramer's Action Alerts Plus portfolio, which owns Apple. "The other concern with China is the current caps on gaming, which could be impacting Services revenue as mobile gaming in the region, especially mobile esports, has become very popular. So we will be watching that very closely with a focus on Tim Cook's commentary regarding his outlook on the region going forward."

7. Mac and iPad Sales

Following a June quarter in which Mac revenue and iPad revenue each fell 5%, expectations are fairly low for Apple's PC and tablet businesses: Both are expected to see revenue drop about 4%, with iPad units coming in around 11 million and Mac units around 5 million.

A product refresh should provide some boost to December quarter sales. On Tuesday morning, Apple is expected to unveil Face ID-capable iPad Pros that have smaller bezels than their predecessors, as well as a low-cost MacBook and a new Mac Mini.

8. Stock Buybacks

Apple, which launched a new $100 billion buyback authorization in early May in the wake of tax reform, spent $20 billion on buybacks during its June quarter. It wouldn't be surprising if the company, which says it wants to eventually be net cash neutral (that is, possess an equal amount of cash and debt), also spent heavily on buybacks during the September quarter.